Shearman & Sterling LLP | Financial Regulatory Developments Focus | EU Contracts for Difference Product Intervention Measures to be Extended
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  • EU Contracts for Difference Product Intervention Measures to be Extended
    09/28/2018
    The European Securities and Markets Authority has announced that its various restrictions on the sale, distribution and marketing of Contracts for Difference to retail investors will be extended from November 1, 2018 for a further three months.

    ESMA adopted two temporary product intervention Decisions under the Markets in Financial Instruments Regulation in June this year, one relating to binary options and another to CFDs. ESMA has powers under MiFIR to impose prohibitions or restrictions on certain financial instruments, financial activities or practices to address a significant investor protection concern in the Union. Product intervention measures imposed by ESMA under MiFIR must be reviewed at appropriate intervals and at least every three months. If a measure is not renewed after three months, it will expire and it would then fall to member states to impose similar restrictions at a national level, if they so wish. The U.K. Financial Conduct Authority is expected to consult before the end of the year on whether to make permanent the EU's temporary prohibition on marketing, distribution and sale of binary options to retail investors. The International Organization of Securities Commissions recently published a report on retail OTC leveraged products, alongside a statement warning retail investors of the risks of investing in illegal or fraudulent binary options.

    The first Decision prohibited the marketing, distribution and sale of binary options to retail investors from July 2, 2018 until October 2, 2018. ESMA adopted a Decision on September 21, 2018 to extend the ban relating to binary options for a further three months, although certain types of binary options were excluded from the scope of the prohibition because ESMA considers that those binary options are less likely to present a significant investor protection concern.

    The second Decision adopted in June imposed a number of restrictions on the marketing, distribution and sale of CFDs to retail investors between August 1, 2018 and November 1, 2018. ESMA's announcement confirms that the restrictions will be extended for a further three months. The extending Decision will also include an additional reduced character risk warning because CFD providers have experienced technical difficulties in using the risk warnings due to the character limitations imposed by third-party marketing providers.

    Alongside the announcement, ESMA has issued updated Q&A to promote common, uniform and consistent supervisory approaches and practices in the day-to-day application of the measures. The updated Q&A clarifies that the CFD temporary product intervention measure applies in relation to rolling spot forex that do not qualify as an option, future, swap or forward rate agreement.

    View ESMA's announcement.

    View details of the extension of the ban relating to binary options.

    View details of the original Decisions adopted in March 2018.

    View details of IOSCO's report and warning.

    View the FCA's information page about binary options.

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